Housing Starts Point to Growing Economic Momentum

Groundbreaking to build U.S. homes rose in February and permits for construction climbed to their highest level since 2008, signs the housing market recovery is gathering steam.

The Commerce Department said on Tuesday that housing starts rose 0.8 percent last month to a 917,000-unit annual rate. Permits for future construction jumped 4.6 percent to a 946,000-unit rate, the quickest since June 2008.

The housing data was just the latest to suggest the economy has built a fair bit of momentum in the first quarter. Housing is helping counter the drag from tighter fiscal policy as Washington works to shrink the federal budget deficit.

"Housing will be a major contributor not just to GDP growth, but also to job creation," said Dan Heckman, a fixed income strategist at The Private Client Reserve at U.S. Bank in Kansas City, Missouri.

In February, employers added 48,000 construction jobs, the most since before the recession.

Despite the recent improvements, the Federal Reserve is expected to push forward at a meeting on Tuesday and Wednesday with plans to buy $85 billion in bonds per month until its sees a more substantial improvement in the labor market outlook.

It will announce its decision at 2 p.m. (1800 GMT) on Wednesday.

Home building added to economic growth last year for the first time since 2005 and the figures on starts and permits reinforced the view that it will provide stronger support this year.

"Home building continues to recover and add to the recovery," said Gus Faucher, an economist at PNC Financial Services in Pittsburgh. "The rise in permits suggests we will have a solid spring."

SOLID SPRING

The housing data helped lift U.S. stock prices, which were up marginally in morning trade. Prices for U.S. Treasurys edged up for a second day as investors were unsettled by a bailout deal in Cyprus that risks a bank run from a proposed tax on depositors or the country's default if the proposal falls through. Further turmoil in Europe, which is struggling to deal with a broader sovereign debt crisis, is a threat to the U.S. economy.

Starts for single-family units, which comprised about two thirds of the total, edged up 0.5 percent to their highest level since June 2008.

Still, the housing market remains a shadow of its former self, with starts at less than half of their pre-recession peak and near levels seen in the early 1990s.

Also, the recovery has been bumpy. In March, homebuilder sentiment slipped to the lowest level in five months as supply chain concerns and rising costs dented enthusiasm, according to data released on Monday.

But steady improvement in employment has boosted demand and a dearth of homes on the market has helped push prices higher. These two factors are expected to drive construction of new homes throughout 2013. On Thursday, data is expected to show sales of existing homes rose in February to the highest level since 2009 when a federal tax credit for home buyers was due to expire.